Feb 16, 2010

New Credit Card Rules and Your Credit

If you are trying to reestablish good credit, you may want to wait until the rest of the new credit card laws go into effect. Under the new laws, there are several protections for ‘subprime’ credit card holders, including:

1. A limit on fees. Under the new laws, credit card companies can’t charge more than 50% of your credit limit in fees for a new card, even if your credit is less than perfect. Additionally, they can only collect up to 25% of your credit limit in fees up front. The rest must be spread out over several months. You also can’t be hit with “convenience” fees when you pay by phone or online, provided that you are paying well before the due date.

2. No over-limit fees (without opt-in). No longer will credit card companies be able to charge you an over-limit fee on a case-by-case basis. You have to opt-in to the fees, otherwise, your card will simply be declined, and no fees will be incurred. Staying away from over-limit fees is a good way to avoid a hit to your credit scores as well.

3. No multiple over-limit fees for a single transaction. If you do opt-in to the fees, the credit card companies will only be able to charge you once. For example, if you go over your limit one month, but make no new purchases the next month, they cannot charge you a second over-limit fee, even if your balance remains higher than your credit limit.

4. 45-day notice required for changes in terms. If a credit card company decides to change any terms of the card, they must provide 45 days’ notice. You have the right to opt out of the changes, and pay down your balance, but in many cases, if you don’t accept the changes, the account will be closed.

5. Consistent due-dates. Due dates for your credit card bill must be consistent from month to month. This helps to eliminate the potential damage to your credit scores due to fluctuating payment dates.

Even with these changes, getting new credit may not be simple. In some instances, you may want to opt for a secured credit card in order to guarantee the best rates possible. If you’re having trouble deciding what kind of credit card would be best for you, it’s important to do the research first. Applying for several different credit cards at once will harm your scores, so narrow down your choices and only pick one or two applications so send in. The new credit card laws can help you to improve your credit scores, but only if you use your credit wisely.

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Nov 5, 2009

New Credit Laws – Tactics the Credit Card Companies are Using to Charge You More

When the new credit card laws went into effect in late August, it was seen as a good first step to creating fair credit terms for all consumers. While this is still the case, many individuals may be facing higher payments than they were under the old laws. This is due to changes the credit card companies have made in an effort to reduce potential losses due to the new regulations. If you’ve been hit with any of the following tactics, there are a few things you can do to help improve or maintain your credit scores.

Last Minute Interest Rate Hikes – Many credit card companies sent out notifications detailing higher interest rates and other terms in advance of the new credit card laws. Some of these notifications may be confusing to consumers, due to the fact that the listed changes may not take effect for several months. Here’s the bottom line: if you received a notice of a change to your credit card’s terms before August 20th, you only have 15 days to opt out, even if the proposed changes don’t take effect until months later. Don’t wait to take action, and be sure to read the fine print in order to avoid having your account closed, or assessed additional fees.

Changes to Minimum Payments – Some credit card companies are also raising the amount you have to pay each month if you carry a balance – up to 5% from the typical 2-2.5% seen in years past. While you can’t always opt out of these changes, in some cases you may have the option to write in and retain your old rates. Be careful with this option, however, as some companies will close your account if you opt out of their new terms.

Increased Penalties for Late-fees and Over-limit Fees – While these types of penalties are easy to avoid if you pay your bills on time and stay within budget, credit card companies are also reducing consumers’ credit limits without providing any notice. Because the credit card companies aren’t required to inform you about changes to your credit limit, you could rack up over-the-limit fees without realizing it until your statement arrives in the mail. Your best defense against this is to sign up for alerts that will let you know when you are approaching your limit, coupled with regular vigilance through online access or customer service, so that you always know your limit before you go shopping.

Another way to avoid paying extra: Opt out of over-limit purchasing altogether.  Companies are now required to allow you to do this, but you will have your credit card declined for any purchase if that purchase would take you over the limit. If you typically keep your balances low, but aren’t sure about your credit limit, this is one way to avoid getting hit with additional fees.

Most credit card companies allow for automatic payment of your bill, either in full or the minimum balance, monthly. By taking advantage of these programs, you can eliminate the chance that you’ll be charged a late-payment fee on your accounts as well. Just keep track of your due dates and be certain that you have the funds readily available to cover the automatic bank draft, or you could wind up paying just as much, or more, in overdraft fees from your bank.

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Oct 27, 2009

Credit Cutbacks – Has Your Limit Been Slashed?

In an effort to minimize potential losses as a result of the new credit card laws that went into effect on August 20th, many credit card companies are slashing credit limits for customers who carry a balance from month to month. This can be true even if you’ve never missed a payment, and have been responsible in paying your other bills on time.

While changes in interest rates require a notice, these reductions to your credit limit can come without warning, leaving many uninformed about the reduced limits until they receive their monthly statement. Reductions of hundreds or thousands of dollars are not uncommon, and can really put a dent in your credit score, regardless of how responsible you are when it comes to making on-time payments each month. What’s worse, you may be hit with over-the-limit fees on newly reduced balances, when your original spending was well-within your old credit limit.

Many consumers are surprised to realize that unlike interest rate changes, changes made to the credit limit can be done at any time, without informing the consumer. This means that even if you have a $1000 credit limit today, there is nothing stopping the credit card company from lowering that limit to $800, or even $500 tomorrow. The only way to stay informed is to check your account information regularly. If your credit card company offers online access to your account, it may be helpful to check your credit limit in this way.

Another option is to set up an alert that will send you an email or text message when you are approaching your credit limit, but this may not be as helpful in terms of saving your credit. Why? The ratio of how much you spend on your cards, versus your available credit limit is a factor in calculating your credit scores. If you wait until you are only a few hundred dollars away from your limit to set an alert, the damage to your credit score may already be done. While you will avoid any sneaky over-limit fees, you won’t be able to prevent the hit to your credit score that comes from over-utilization of available credit.

If one credit card company reduces your balance, others may follow suit as your available-credit-to-debt ratios will now categorize you as a higher risk. While the logical option would seem to be avoiding the use of your credit cards altogether, this choice can backfire, as many credit card companies are actively closing accounts that do not have any activity after a few months. Your best option is to continue using your cards, and pay off the balances each month if at all possible. This will keep you from having an account closed for inactivity, and it will also keep you from being targeted for credit limit reductions due to carrying a balance each month.

While there is no law that requires your credit card company to keep you informed about your credit limit, you can remain informed by keeping a close eye on your balances, either online or via customer service. Don’t let surprise credit limit reductions derail your good credit – set up alerts, check your balance regularly, and pay off as much as you can to avoid unpleasant repercussions.

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Nov 18, 2008

Credit Cards and Fine Print: Why You May Be Paying Fees, Even if You’re Paying on Time

Most people who have taken the time to repair their credit are careful about maintaining it. Paying bills on time regularly becomes a habit, and you might assume that your responsible spending will be rewarded in lower interest rates and better terms on your credit card. While this may be true in some cases, more and more credit card companies are factoring fees and steep interest rates into their profit model. This means that even if you pay your card on time, you may be charged more than you realize. Here are some terms you may see in the fine print of your credit card and what it can mean to you in terms of fees, interest and extra payments.

Universal Default

You may notice that if you miss a payment by even a few days with one credit card account, your other credit cards will revert to a default rate. This is what’s termed ‘Universal Default’ and some credit card companies use it to trap you into higher interest rates. After all, it’s almost certain that you’ll be a little late at some point, and this allows the credit card company to make a bigger profit, even if you aren’t late making payments to their company in particular.

Unfortunately, the only thing you can do to avoid universal default if it is a part of your credit card agreement is to pay all of your credit card bills on time, every time. A better bet is to look for a card that doesn’t have this stipulation in the agreement, and transfer your balances there.

Interest on Late/Overlimit Fees

Some people do not realize that if you are charged a late fee, interest accrues on the fee as if you made a purchase. This essentially means that you are charged more for each time you go over your limit or are late on your payments – and the interest continues to build month to month, so that it becomes more difficult to keep your balances down and avoid more fees and damaging notations to your credit report.

Double Cycle Billing

Double cycle billing is another financial ploy that many credit card holders do not realize is working against them. Essentially, double cycle billing charges interest twice on the same purchases, if you make a partial payment to bring down the balance without paying it off entirely. For example, if you had a zero balance on your card and you made a purchase of $1000 dollars, paying $400 when the bill was due should mean that you would only have interest charges on the $600 that’s left on your bill. This is true with cards that use conventional billing. However, with double cycle billing, you would actually have interest on $1600 the next month. The initial interest would be charged to the $1000 purchase you made, and then additional interest on the $600 balance remaining on the card.

This is another of those instances when it pays to shop around and read the fine print. Be certain your grace period for purchases is spelled out, and if not that the actual interest charges are not double-billed.

“Courtesy” Overdraft

Many times, credit card companies will allow you to keep charging on your card, even if you are over the limit. This means that if you don’t keep a close eye on your balances, you could be charging up a fortune in overdraft fees. While this type of ’service’ is usually called a ‘courtesy’ overdraft, it is actually a disservice that hurts your credit score and makes it difficult for you to obtain more credit, as well as making it difficult to pay off what you already owe.

One of the easiest ways to avoid courtesy overdraft is to set up a reminder that will alert you when you are nearing your credit card limit. Be sure to set the alert at a reasonable amount: $100 to $200 left on your card should give you plenty of notice so that you don’t overspend unknowingly.

If you pay careful attention to the terms on your cards, and plan your credit card purchases accordingly, you can avoid falling into the traps that credit card companies set in order to take more of your money each month. Shop around for fair cards that don’t use deceptive billing practices and you’ll be well on your way to avoiding woes due to fine print.

Posted in courtesy overdraft, credit, credit card fees, double cycle billing, late fees, overlimit fees, universal default | No Comments »